March 2013

03/29/2013

…In general, the lasting anger and bitterness of litigation doesn't seem to occur when matters are settled by mediation.

Inheritance battles are nothing new. We see several of them make their way into courtrooms far and wide, exposing the family “cat fight” for all to see. It seems that lawyers are the only real winners in the end, after the expensive court costs are all tallied up.

Mediation, however, can be a very practical and affordable forum to settle the squabbles before litigation.

The importance and increasing popularity of mediation was the subject of a recent article in The Wall Street Journal titled “If Heirs Are Fighting, Try Mediation.” The article is in the form of an interview with prominent lawyer and mediator, William Zabel. As Mr. Zabel points out, not every matter needs to be litigated, but must be decided.

Truth be told, the best way to avoid litigation, or even mediation, is to carefully structure your estate plan from the outset. Likely you know the “players” all too well. For example, which of the in-laws are most likely to become the outlaws? Are there any heirs who may be more likely to lose their inheritance to squandering, divorces, lawsuits and bankruptcies?

Planning for your estate can be cumbersome, so you will need to seek knowledgeable legal counsel early in the process. More than likely, your attorney has “seen it all” and can help you prepare for any possible battles ahead.

03/28/2013

Already, 5.2 million Americans have Alzheimer’s or some other form of dementia. Those numbers will jump to 13.8 million by 2050 …

The latest numbers are in from the Alzheimer’s Association, and reports show one in three seniors dies with Alzheimer’s or other dementia. That is a rather disconcerting statistic, so it only makes sense to make your health care and legal plans now before it’s too late.

This new statistic – hardly alone in a field of such startling stats – comes from a new report by the Alzheimer’s Association. This was discussed in a recent article in The Washington Post titled “Beyond memory loss, report finds 1 in 3 seniors dies with dementia that can impede other care.” Beyond these statistics is the realization that these conditions have a likelihood to impede other care and render a loved one vulnerable to further conditions. For example, pneumonia can be caused by poor motor skills (difficulty swallowing), complications to medication, and even the inability to understand and communicate regarding one’s health care matters.

All told, Alzheimer’s is the sixth leading cause of death, given that it is listed as the underlying condition on death certificates.

So, what should you do now? Realize that Alzheimer’s and dementia are very real and insidious threats to the health and well-being of yourself or your senior loved ones. Get your ducks in a row now, especially when it comes to advance health directives and estate plans.

When planning for this sensitive area of your health care and estate, make sure you engage competent legal counsel to help you navigate the applicable laws.

03/27/2013

Let's say that someone who is not your spouse recently died and named you as their IRA beneficiary. You now have what the IRS calls an “inherited IRA.”

When you inherit money, once you receive it you can usually decide where it goes from there, such as a simple deposit in savings. When you inherit an IRA, it’s a whole different ball game. And any mistakes will be punished by the IRS. When handling IRA money, make sure you mind the details of the transfer.

The Slott Report considered this matter in a recent article titled “Moving Inherited IRA Money? Be Careful.” If you inherit non-IRA money, plain and simple, then you could stick it in any bank account or investment and be done with it. Unfortunately, there are extra steps to consider when moving inherited IRAs.

For starters, you cannot move an inherited IRA into your own IRA if you are a non-spouse beneficiary. What if the financial institution where the account is held charges too much or another institution has better investment options? How do you move the inherited non-spousal IRA? The direct approach, naturally.

In a direct IRA transfer the first bank cuts the check to the second bank, for your “benefit” as beneficiary but NOT in your “name.” If the check is made payable to you, then it’s already too late. The tax deferral advantage of the IRA will be lost and taxes due. Moreover, in the transfer the receiving IRA has to be of the same kind of IRA (i.e., from a traditional IRA to traditional IRA, or from Roth to Roth).

Since there are many details associated with inherited IRAs, you should consult competent legal and tax counsel before you make a move. Otherwise, there can be some hefty taxes to pay at ordinary income tax rates.

03/26/2013

Statistics on power of attorney abuse are hard to come by, but experts recognize it as a prevalent problem.

There will come a time at which you will need to legally delegate someone to handle your financial matters. This legal delegation, known as a “power of attorney,” is one of the most significant decisions you will ever make. But beware - it can also be a license to steal if put in the wrong hands.

A “power of attorney” is one of the most fundamental legal instruments you will ever create. In fact, everyone upon becoming a “legal adult” (varies by state law) ought to appoint one or more “attorneys-in-fact” to handle financial matters in the event of incapacity. The alternative is an unpleasant (and expensive) adventure in the probate court.

But a power of attorney has an unfortunate downside, especially in the form of financial “elder abuse.” It can become a license to steal.

The problem of abuse by way of a power of attorney is nothing new. In fact, a recent article in MarketWatch took up the matter. The article, titled “Power of attorney: It’s easily abused,” noted that 34% of all elder abuse doesn’t originate with credit card fraud, bogus lotteries, or emails from captive African princes. No, it is due to family members who have access and maybe even the power of attorney to dispose of accounts as they see fit.

The importance of your selection of attorneys-in-fact cannot be stressed enough. This is one of those decisions when the entire family ought to be apprised and alerted to who is going to do what and why.

03/25/2013

Most exit plans seem to deal with some combination of these three basic techniques. And, the lines that differentiate them can be fuzzy.

Owning and running a business is tough stuff, and at times you feel the weight of the world on your shoulders. But leaving your business can be just as challenging, considering you generally only have one shot to get it right.

If you think about it, just about every exit plan can come down to three tools. A recent Forbes article titled “Three Ways to Exit Your Business” examined these tools: sale, capital transfer, and gifting.

While there are many ways to mix-n-match these tools depending on your unique circumstances, the biggest failure is to put your head in the sand. Is it any wonder two-thirds of all business fail to make it from the founders to the next owners, and only half again make it from that second hand off to the third level owner?

The key teaching point is to engage the professional services of your accountant, financial advisor and attorney sooner rather than later. Like a good coach, make sure your “team” knows the end result you want to accomplish in your business transfer.

Be sure to read the original Forbes article as part of your preparation.

03/22/2013

Dad wants to eventually sell the family business to his daughter. She has the smarts, drive and desire, and he doesn’t want to work forever. Not only does he want the business to be a success for her; but part of his retirement income will be dependent on her making the payments for the business.

Your business is more than just a job; it’s a very personal asset and the means of providing for your family, your employees and yourself. So it’s no surprise that passing down the family business is one of the most difficult experiences you’ll encounter along the way.

The good news is that there are plenty of tools for exiting the family business, with varying degrees of complexity. Sometimes, however, a simple buy-sell arrangement is the right tool for the task.

This was the subject of a recent article in Forbes titled “Exiting The Family Business: Tax Tips And Techniques,” which included some important tax and planning pointers. At its most basic level, the simple efficiency of a buy-sell arrangement is easy to understand and appreciate. Commonly, the owner (and parent, likely) is going to need retirement income to retire. However, the family business was their only source of income and their greatest asset. As a result, selling the business within the family allows the successor generation to assume control in a way that guarantees the financial well-being of the retiring parent and the entire family.

This transfer can be accomplished with an outright sale-purchase. On the other hand, a buy-sell agreement can work the sale-purchase over time in installments. Consequently, the founder may even gift some portions away and sell others. A key point, whether gifting or selling, is having an accurate valuation of the business. If the value is too low, then the “sale” price looks more like a “gift.” Problem: if the value is deemed too low, then this catches the interest of the IRS. This never is a good thing.

A sale of anything carries with it tax implications. When it comes to selling (or gifting) a business, you will want to connect all of the dots. The original Forbes article discusses many of those dots and offers practical tax moves to stay out of trouble.

While there are significant limitations to the buy-sell and there are other alternatives to evaluate, it is one means to kill two birds with one stone by providing retirement income to the seller.

03/21/2013

In bringing her case to the Supreme Court, Windsor argues that DOMA violates the U.S. Constitution's guarantee of equal protection. DOMA backers say the law is valid.

Same-sex marriage has been a controversial issue in American politics and will likely continue to be a hot button for many. But On March 27, the Supreme Court is set to rule in a case that may impact both politics and same-sex estate planning as we know them.

The case going before the Supreme Court is the story of Edith Windsor and Thea Spyer. The subject: the application of the federal estate tax in the context of a “same-sex marriage.” A recent article in Reuters considered the case and its implications. The article titled “Analysis: Death, taxes and Supreme Court's gay marriage case,” notes that the case began when Thea Spyer passed away and left her estate to Edith Windsor, her spouse under Canadian law. However, because the Defense of Marriage Act (DOMA) precludes same-sex marriage, Spyer’s estate was not afforded the unlimited marital exemption.

This exemption permits a spouse to pass his or her estate to their surviving spouse without federal estate taxation. Because her marital status is not recognized under DOMA, Windsor had to pay the estate tax and her suit is to recover that payment. She is alleging that the basis of the tax, DOMA, is itself unconstitutional.

If the Supreme Court agrees with Windsor, the implications are profound on many levels, to include social and legal. Should DOMA remain the law of the land, then traditional same-sex estate planning will remain unchanged, but no less important.

03/20/2013

"It's like decanting a bottle of wine; you pour the wine into a new bottle to air it out," says Mark Haranzo, a partner at law firm Withers Bergman. In trust terms, you pour the assets of an old trust into a brand-new trust that essentially allows a redo.

Irrevocable trusts can be a great tool in planning for your estate. Unfortunately, the “irrevocable” nature of your irrevocable trust can be a big flaw if your objectives change. What happens if your irrevocable trust now conflicts with your goals?

Enter “decanting.”

A recent article in Barron’s explored this common dilemma in an article with a catchy title: “How to Bust a Trust.”

The “irrevocability” of an irrevocable trust makes changing the trust a very difficult practice under normal circumstances. Normally, this is a good thing. Why have all of the time, effort, and money you invested to plan your estate be undone? Accordingly, the traditional process for changing the terms of an irrevocable trust has been rightfully onerous.

Unfortunately, it’s not entirely uncommon that the machine needs some retooling, let alone re-lubricating. Perhaps the laws have changed significantly, and your original goals for your loved ones have proven unworkable or even detrimental to them. In a worst case scenario, the inheritance could become a curse rather than a blessing.

In short, to “decant” the trust is to work around those harsh legal and people conditions, realigning the trust to conform to the new environment. The decanting process involves pouring the assets from one vessel to another – from one trust to a new form of the trust or an entirely different trust.

This is not a do-it-yourself project, however. It can prove to be complex rather quickly. In fact, at present, decanting is only possible in 18 states. Consequently, the laws of your state will determine whether the process is available, as it matters where your trust exists.

For more on decanting be sure to read the original article. This is information worthy of your consideration whether you are establishing your family trust now, are a trustee, or a beneficiary.

03/19/2013

…More than 40% of women and more than half of men over 50 who get divorced end up remarrying, according to Census Bureau data.

For folks like these, all sorts of financial considerations can complicate the question of whether and how to go about remarrying.

Although there are several things that get easier with age, “later-in-life” marriage isn’t exactly one of them. Marrying later on in your years can bring some unique challenges when it comes to financial plans and legal matters.

If you’re no stranger to the game, then some of the later-in-life marriage challenges will be familiar, others less so. For example, do any of these issues have a familiar ring: shall we have “separate accounts or joint accounts?” is it better to “file individually or file jointly?” and shall we live in “your house or mine?”

Essentially, young married couples simply don’t have as many accounts, assets, liabilities, health concerns, dependents, or complex family relationships. For them, marriage might be as simple as saying “I do.” Now that you’ve got all of that stuff and your own lifelong relationships, this can get complicated (and fast) when you add the stuff and lifelong relationships of your later-in-life spouse.

If you haven’t thought through the potential challenges, here are a few to get you started:

Social Security and pension benefits

Healthcare, health needs, and Medicare benefits

Past marriages and alimony

Children and college financial planning

Your estate, your heirs, and your beneficiaries

The original article goes into some depth regarding each of these points. Remember, however, they are complex and intertwined.

When making your financial, tax and estate plans, don’t go it alone. Be sure to engage competent professional counsel.

03/18/2013

This uncomfortable, ethically questionable, confusing scene over Ms. Bayliss’ end of life did not have to happen the way it did. If you don’t want to be in that kind of situation, you need to be responsible for deciding what you want and communicating it to those who will have to act on your behalf.

You may have heard about a rather unfortunate story that came out in the news a little while ago. It’s the story of Lorraine Bayless and the Glenwood Gardens nursing home.

Here are four key facts regarding this story. First, Lorraine was having a stroke and CPR was not likely to help her. Second, the “nursing facility” was actually an independent living facility without skilled nurses. Third, Lorraine herself had not wanted a long drawn out passing; and fourth, Lorraine and her family already had arranged for a Do Not Resuscitate (DNR) order.

Against this backdrop, each of us needs to know two fundamental wishes when it comes to our loved ones:

1) What does your loved one want and need in a facility? Since the facility in question was not an actual nursing home and the “nurse” was not actually a skilled nurse, the staff was not allowed to perform CPR, both by “company policy” and by law. There are many types of facilities with varying degrees of medical or personal care.

2) Likewise, what does your loved one want (or not want) when it comes to end-of-life measures? What decisions has your loved one made regarding emergency care, resuscitation, breathing or other life-sustaining apparatuses? Lorraine purposefully had a DNR, had made her decision, and her family clearly knew her wishes. Nevertheless, there are many additional considerations when it comes to making and communicating your wishes.

As you might imagine, it’s best for your senior loved ones to commit their wishes and decisions to writing. The most common form is known by many different names, but is simply a written record of their healthcare directives made in advance. As with financial matters, your senior loved ones also will want to sign a durable power of attorney for medical matters and appoint the “agents” they know and trust to carry out their wishes. Another document to evaluate is the Physician’s Orders for Life Sustaining Treatment (POLST), often also called Medical Orders for Life Sustaining Treatment (MOLST).

Regardless, the object of these kinds of documents is to empower your senior loved ones to inform their loved ones, doctors and medical facilities about their wishes now so those wishes can (and will) be carried out later. Note: Once executed, copies of the health care directives should be liberally distributed among agents, non-agent family members, doctors and medical facilities. As these end-of-life wishes also are emotional decisions, it is best if everyone concerned is informed rather than surprised.

This end-of-life planning isn’t just for senior loved ones. Have you made your wishes known through proper legal planning? The best way to encourage personal responsibility in others is to lead by example.